What are Beneficiary Designations?August 25, 2022
Estate planning can be an emotionally charged, difficult, and complicated process, especially if you have a large family or a complex estate. Whether you are looking to create your first will or update your existing will, it is vital to understand what beneficiary designations are and why they matter for your estate. As experts in estate planning and personal planning, the team at Sidhu & Associates knows that every detail of your will matters. That is why our experts have provided some information to define what beneficiary designations are, why they matter, and what to consider when designating a beneficiary to ensure that you have the knowledge you need to make an informed designation.
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A Definition of Beneficiary Designations
Beneficiary designations refer to the process of specifying who will receive the assets in a testator’s RRSP, RRIF, or TFSA and other parts of their estate after they have passed away. Should a designation be made to specific beneficiaries, those assets will pass to the person(s) named. If a testator does not make a specific designation, those assets become part of their estate and will be dealt with by the executor in accordance with the terms of their will.
Why are They Important?
Designating beneficiaries is a vital part of the estate planning process as they help to drastically reduce probate fees and other costs. If no beneficiaries are designated, probate fees can quickly add up depending on the value of the assets. When a benefit plan or asset is paid directly to the designated beneficiary, that asset or plan is kept outside of the estate and will not be subject to probate fees, reducing the total cost of the estate distribution process.
What to Consider When Designating a Beneficiary
When designating a beneficiary, it is important to consider the following:
- Any costs associated with probate that can be avoided through a designation.
- The number of alternate beneficiaries that may be required.
- The risk of contention with this designation.
- Whether a trust is needed or not.
- The risk of a separate designation not being updated when the client updates the will.
- Privacy—if a designation is made in the will, the entire will must be disclosed to each of the plan administrators.
- Whether the designation is irrevocable or not.
- Whether there is a need or ability for the power of attorney or committee to be able to change the designated beneficiary.
To learn more about our estate and personal planning services or to inquire about our other notary services, get in touch with the team at Sidhu & Associates. We can be reached through our online contact form and will be happy to answer any questions you may have regarding our services.